The Total Cost of Trump’s Tariffs

Jacqueline Varas

One of President Trump’s most prominent policy actions since taking office has been to raise tariffs, which significantly harm the U.S. economy. Trade barriers such as tariffs increase the cost of both consumer and producer goods and depress the economic benefits of competition, inhibiting economic growth. Research suggests that tariffs are directly responsible for inflation, depressed aggregate demand, less capital expenditures, and lower productivity levels.

The president’s tariffs, when combined with corresponding retaliation, threaten $660 billion of traded goods annually. The following analysis calculates the overall impact these tariffs could have on the prices of goods in the United States.

The Economic Cost of Current Tariffs

This analysis focuses exclusively on the impact of tariffs unilaterally imposed by the president. These include tariffs—either enacted or officially ordered—under Section 232 or Section 301. Section 232 allows the president to impose trade barriers if the Department of Commerce finds that imports threaten U.S. national security. Section 301 enables the president to impose tariffs or quotas when the United States Trade Representative (USTR) finds that other nations are engaging in unfair trade practices.

The table below lists the approximate value of imports that are currently facing new tariffs under President Trump. It additionally displays estimates of how the tariffs could increase nationwide consumer costs, assuming that 100 percent of the costs from the tariffs will be passed on to consumers and that current import levels will not change. While this estimate is an upper-bound, it represents the upward pressure that is placed on all prices in the economy.

Altogether, the president’s tariffs could increase nationwide consumer costs by over $120 billion annually. This estimate includes the president’s latest tariff actions – new 10 percent tariffs on the remainder of all U.S. imports from China. Upon China announcing its intention to retaliate, the president increased these new tariffs from 10 percent to 15 percent. The 15 percent levy will occur in two waves; tariffs on list 4A will go into effect on September 1, 2019, and tariffs on list 4B will go into effect on December 15, 2019. China’s retaliation also spurred President Trump to order an increase in the third tranche of tariffs – 25 percent tariffs already in effect on roughly $200 billion of imports – to 30 percent; an increase which the president delayed until October 15 after China agree to exempt certain U.S. goods from retaliatory tariffs. These three latest tariff actions can be expected to increase nationwide consumer costs by $40 billion annually.

After imposing new tariffs, the president has only reversed them once. On May 20, 2019, the United States removed the steel and aluminum tariffs on Canada and Mexico, reducing the value of affected imports by approximately $12 billion. This action in turn reduced the additional consumer costs from the tariffs by $2 billion per year.

An Excel file detailing the tariffs and the products they affect can be found here.

In addition to raising costs for American consumers, tariffs have also resulted in significant retaliation by other countries against U.S. exports. Table 2 below details every retaliatory action taken against the United States thus far and the value of U.S. exports that are adversely affected.[iii]

To date, six nations have levied retaliatory tariffs of 5 percent to 50 percent on approximately $104 billion of U.S. exports. These tariffs do not include retaliation by Canada and Mexico; following the reversal of U.S. steel and aluminum tariffs, both Canada and Mexico withdrew their retaliatory tariffs of 7 percent to 25 percent on approximately $20 billion of U.S. exports.

Table 2 does include China’s retaliation to the president’s latest tariffs (lists 4A and 4B). On August 23, following President Trump’s announcement of new tariffs on roughly $300 billion of Chinese goods, the Chinese Ministry of Finance announced it will impose tariffs of 5 percent and 10 percent on roughly $75 billion of U.S. exports. Of those, $11 billion will be impacted for the first time, while $64 billion are already subject to Chinese retaliation but will face tariff increases. China’s retaliation mirrors the president’s tariffs, with the first batch taking effect on September 1 and the second batch on December 15.

China also announced that it will be reversing a previous decision to lift tariffs on U.S. automobile and auto parts negotiated by President Trump last December. Tariffs on certain U.S. cars and auto parts will increase from the current 15 percent to 40 percent, while tariffs on other American-made auto parts will increase from zero to 5 percent.

* Only $11 billion of U.S. goods out of the $75 billion are newly subjected to Chinese retaliation.

Upcoming New Tariffs

On May 10, 2019, the president ordered USTR Robert Lighthizer to begin the process of raising tariffs on essentially all remaining imports from China, valued at approximately $300 billion. While President Trump’s most recent action is 15 percent tariffs on these goods, the president originally indicated that the tariff rate would be 25 percent. If the rate of these final tariffs were to increase from 15 percent to 25 percent, nationwide consumer costs would increase by an additional $27 billion per year. This hike would bring the total cost of President Trump’s new tariffs to nearly $150 billion annually. Two-thirds of these imports are used by U.S. businesses to produce goods in America, meaning that new tariffs will also increase domestic production costs.

On May 23, 2018, President Trump ordered a Section 232 investigation into imports of automobiles and auto parts. The Department of Commerce reportedly found auto imports to be a national security threat, meaning that new tariffs could be levied on auto imports at any time. These tariffs will increase the costs of imported automobiles in the United States. The tariffs on auto imports will also increase costs for U.S. automakers, which could either raise consumer prices further, decrease U.S. auto manufacturing activity, or both.

[ii] Includes approximately $31 billion of goods that are only partially covered by the tariff action, as indicated by Part 2 of the U.S. tariff list. The inclusion of these goods brings the total value of affected imports close to the value reported by the U.S. Trade Representative at the time the tariffs were enacted ($200 billion in 2017).

[iii] The value of U.S. exports subject to retaliation is based on 2018 trade levels.